Approximately US$680 Million of Securities Affected.
New York, June 11, 2002 -- Moody's Investors Service has confirmed its Ba3 preferred stock rating of Apartment Investment and Management Company (AIMCO), and simultaneously changed the REIT's rating outlook to stable, from negative. According to Moody's, this revised outlook reflects AIMCO's successful implementation of its financing strategy and management of the integration of the $1.5 billion Casden Properties apartment portfolio acquisition. In particular, the REIT has reduced its short-term debt with proceeds from a $370 million common stock issue, a $50 million preferred equity issue and asset sales proceeds. The REIT's ability to raise capital given tougher market conditions is a credit positive. Moreover, AIMCO has continued to make significant operational improvements following the Casden acquisition.
Moody's ratings continue to incorporate the REIT's focus on multifamily real estate appealing to middle-income residents. The rating agency added that the Casden acquisition enhances AIMCO's competitive position in the multifamily sector by increasing its presence in the Los Angeles market, and making it one of the largest owners of apartments in the USA. The REIT's increased size, experienced management team and improved operating efficiencies should position AIMCO well to compete. Strong portfolio fundamentals, including solid occupancy levels, sound same-store net operating income growth and strong geographic diversification, are also credit positives.
These positive rating factors are offset by AIMCO's high effective leverage, substantial levels of encumbered properties, material investments in loans to leveraged partnerships in which the REIT owns a general partnership interest, and interest and fixed charge coverages that are low compared to its apartment REIT peers. The REIT generally finances its growth with fully-amortizing, non-recourse property level debt, preferred stock and common equity, helping to reduce refinancing risk. Nonetheless, AIMCO's encumbered balance sheet reduces its financial flexibility and weakens preferred shareholders' position. Risks are tempered by the REIT's moderate loan-to-value level and stable cash flows generated by its portfolio. Moody's anticipates that the REIT will stick to its operating and financing strategy.
The average age of the REIT's property portfolio is high. Unlike newer properties, these more mature assets tend to require high repair and maintenance expenses, and capital expenditures, to fight asset deterioration and obsolescence. Moody's notes that AIMCO seeks to control obsolescence by allocating appropriate levels of capital for major improvements and redevelopment activities, and ongoing maintenance to retain economic competitiveness. Redevelopment will likely remain a focus of the REIT. Moody's notes that although management's understanding of the redevelopment process is reassuring, there are a number of risks inherent in redevelopment, such as cost overruns, contractor delays, and potential losses in leasing projections.
The stable outlook reflects Moody's expectation that the REIT will prudently manage its strategic growth while modestly improving its effective leverage and interest and fixed charge coverages. In addition, Moody's is encouraged that AIMCO continues to focus more on internal operations, including rental rate management, occupancy and net operating income.
The following ratings were confirmed:
Apartment Investment & Management Company -- preferred stock at Ba3; senior unsecured debt shelf at (P)Ba1; subordinated debt shelf at (P)Ba2; preferred stock shelf at (P)Ba3.
AIMCO Properties, L.P. -- senior unsecured debt shelf at (P)Ba1; subordinated debt shelf at (P)Ba2.
Insignia Financing I -- backed preferred stock at Ba2.
Apartment Investment & Management Company [NYSE: AIV] is a self-administered and self-managed REIT that owns or has investments in approximately 1,900 properties, including approximately 336,000 apartment units, and serves approximately one million residents. AIMCO's properties are located in 47 states, the District of Columbia and Puerto Rico. As of March 31, 2002, AIMCO had $9.7 billion in assets and $2.9 billion in equity.
New York
Philip Kibel
Vice President - Senior Analyst
Real Estate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
John J. Kriz
Managing Director
Real Estate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
